A Belated Reaction To China's Rare Earth Threat

Beijing denied reports Thursday that it was blocking exports to Japan of  "rare earth" minerals used in products like hybrid cars, wind turbines, computers, and aircraft, but the raising of the issue was itself a form of pressure on Tokyo. China is thought to account for up to 97 percent of global rare earth production, which poses a threat of disruption to all other advanced economies including the United States. 

Resorting to such a trade sanction would send shockwaves through the world economy. The act would be considered disproportionate if the current dispute was just over the arrest of a Chinese fishing boat captain for ramming Japanese coast guard ships near the Diaoyu (Senkaku) Islands. The uninhabited islands are 240 nautical southwest of Okinawa. Japan gained the islands in the Sino-Japanese War (1894-95) but China claims the islands should have been returned at the end of World War II. The incident is thus part of Beijing's larger attempt to take control of all the islands in the East China and South China seas. At stake are major oil, gas and mineral resources. So Beijing may think the risk is worth it.

China gained its strong market position in rare earths by tactics that should have set off alarm bells earlier. Beijing offered to export rare earth minerals at prices far cheaper than foreign competitors. American mines were further disadvantaged by environmental regulations that led to the closing of the last mine in 2002. Having gained a monopoly position, Beijing has started to exploit it. China has been reducing rare earths exports since 2006 in order to supply its domestic manufacturers, a policy that has also been used to lure foreign high-tech manufacturers to relocate to China to have access to the resources. There have also been large spikes in export prices charged by Beijing.

On Thursday, the U.S. House Science and Technology Committee marked up H.R. 6160, the Rare Earths and Critical Materials Revitalization Act of 2010.  The bill had only been introduced the day before by Rep. Kathy Dahlkemper (D-PA).  According to the Committee's press release,

The bill sets up and funds a program of research and development aimed at advancing technology affecting rare earths throughout their life cycle, from mining to manufacturing to recycling.  It also broadens an existing program of loan guarantees to facilitate the development of these new technologies by private industry. The legislation is intended to help meet national economic and strategic objectives by supporting existing efforts to overcome our current supply deficiencies, while opening the field to enhanced competition in both the domestic and international marketplaces.

Chairman Rep. Bart Gordon (D-TN), an original cosponsor, stated,  "I believe it would be foolish to stake our national defense and economic security on China's goodwill." Amen to that, but it will take years to remedy a situation through a resumption of mining operations that should never have been allowed-- or been forced, to close down.  


Beijing denied reports Thursday that it was blocking exports to Japan of  "rare earth" minerals used in products like hybrid cars, wind turbines, computers, and aircraft, but the raising of the issue was itself a form of pressure on Tokyo. China is thought to account for up to 97 percent of global rare earth production, which poses a threat of disruption to all other advanced economies including the United States. 

Resorting to such a trade sanction would send shockwaves through the world economy. The act would be considered disproportionate if the current dispute was just over the arrest of a Chinese fishing boat captain for ramming Japanese coast guard ships near the Diaoyu (Senkaku) Islands. The uninhabited islands are 240 nautical southwest of Okinawa. Japan gained the islands in the Sino-Japanese War (1894-95) but China claims the islands should have been returned at the end of World War II. The incident is thus part of Beijing's larger attempt to take control of all the islands in the East China and South China seas. At stake are major oil, gas and mineral resources. So Beijing may think the risk is worth it.

China gained its strong market position in rare earths by tactics that should have set off alarm bells earlier. Beijing offered to export rare earth minerals at prices far cheaper than foreign competitors. American mines were further disadvantaged by environmental regulations that led to the closing of the last mine in 2002. Having gained a monopoly position, Beijing has started to exploit it. China has been reducing rare earths exports since 2006 in order to supply its domestic manufacturers, a policy that has also been used to lure foreign high-tech manufacturers to relocate to China to have access to the resources. There have also been large spikes in export prices charged by Beijing.

On Thursday, the U.S. House Science and Technology Committee marked up H.R. 6160, the Rare Earths and Critical Materials Revitalization Act of 2010.  The bill had only been introduced the day before by Rep. Kathy Dahlkemper (D-PA).  According to the Committee's press release,

The bill sets up and funds a program of research and development aimed at advancing technology affecting rare earths throughout their life cycle, from mining to manufacturing to recycling.  It also broadens an existing program of loan guarantees to facilitate the development of these new technologies by private industry. The legislation is intended to help meet national economic and strategic objectives by supporting existing efforts to overcome our current supply deficiencies, while opening the field to enhanced competition in both the domestic and international marketplaces.

Chairman Rep. Bart Gordon (D-TN), an original cosponsor, stated,  "I believe it would be foolish to stake our national defense and economic security on China's goodwill." Amen to that, but it will take years to remedy a situation through a resumption of mining operations that should never have been allowed-- or been forced, to close down.  


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